Clutch Auto - Grab It Now
Clutch Auto - Multibagger In The Making
Clutch Auto Ltd (CAL), India's leading clutch manufacturer with market share of over 60%, is on fast-growth trajectory. With exports rising, revenues are expected to grow at a CAGR (FY06-08) of 46% and net profit at a CAGR of 82%. EPS would expand from Rs 9 in FY06 to Rs 25.7 in FY08. At the current price of Rs 124, the stock is trading at 8.7x FY07E and 4.5x FY08E earnings.
Company Background
Clutch Auto, established in 1971, is India's largest clutch manufacturer and exporter with over three decades of undisputed leadership. Its production facility is located at Faridabad. The company enjoys over 60% market share in tractors and commercial vehicles (CVs). Its clientele includes Tata Motors, Ashok Leyland, Maruti Udyog, Mahindra & Mahindra, Bajaj Auto, TAFE, Toyota, BEML, Escorts and State-run transport undertakings. In CVs, it is a major supplier to Tata Motors with a 60% market share. It has dominant market share of 80% in tractors and supplies to all manufacturers in India.
CAL is growing both organically and inorganically. In FY05, it expanded clutch plate capacity by 122% to 2 millions pieces and trebled clutch cover capacity to 1.5 millions pieces at capital expenditure (capex) of over Rs 5 crore. It acquired the clutch division of Pioneer Inc, US, in March 2006, which was renamed Pioneer Clutch Inc.
Investment Positives
Thrust on exports
CAL is targeting the US heavy-duty clutch market (estimated at $550 million) with its patented products. The acquisition of the clutch division of Pioneer Inc will strengthen its foothold in the US. Pioneer is a quasi manufacturing and distribution company in the US with a warehouse facility of over 55,000 square feet, access to 7 warehouses, 20 marketing networks, sales force of over 100 people, and most importantly a client base of 500 companies in the replacement market. Pioneer's established distribution would help CAL acquire the formers' clients.
The company has bagged a five-year order worth US$60 million from Fleet Pride, which should further aid its export growth. Fleet Pride's established network would also enable CAL tap the formers' clients. We expect export revenues to grow at a CAGR (FY06-08) of 78.8% to Rs 153.6 crore in FY08.
Product patents - a competitive advantage
CAL manufactures 500 different types of clutches including 16-patented products. It has 7 product patents, which have been approved but are awaiting registration. The company is confident of receiving the registrations in the current year. Further, it also has another 14 products under patent filing. Out of the 21 products, patents for 12 (10 in the US) are pending for overseas market. The approval of patents would open up a huge export market for the company.
EBITDA margins to expand
Higher export margins (about 4 - 6%) and implementation of Kaizen technology along with a reduction in headcount would result in higher EBITDA margins. We expect EBITDA margins to expand remarkably to 22% in FY08 from 16.3% in FY06, supporting bottom line growth in coming years.
Debt restructuring to boost net profit
The company is repaying its high-cost debt with funds raised by issuing preferential warrants worth Rs 49 crore. It has also managed to raise funds at cheaper interest rates from the Technology Development Board (TDB) and a few banks, which would further ease finance cost pressure on net profit. Net profit margin (NPM) would improve from 8.5% in FY06 to 13.3% in FY08.
Financials:
For FY06, CAL reported excellent sales growth of 58% to Rs149.3 crore, supported by more than 100% rise in export revenues to Rs 48 crore. EBIDTA registered a 55% growth in FY06. However the rise in raw material costs hit EBITDA margins, which were down by 30 basis points to 16.3%. The repayment of high-cost debts with low-cost loans supported net margins expansion to 8.5% from 6%.
Going forward, with rising export revenues and focus on high-value added products we expect net sales to rise at a CAGR of 45.5% to Rs 316 crore in FY08. Contribution from exports would increase from 32% in FY06 to 45% in FY08. With improving EBITDA margins, net profit would expand from Rs 12.7 crore in FY06 to Rs 42 crore in FY08; CAGR of 82.1%.
Valuation
With the positive trend in automobile industry, demand for clutches is expected to see a strong upsurge. This will translate into robust earning growth and improvement in profitability ratios for CAL. The stock is currently trading at 8.7x FY07E and 4.5x FY08E earnings. The attractive valuation warrants re-rating of the stock.
Clutch Auto Ltd (CAL), India's leading clutch manufacturer with market share of over 60%, is on fast-growth trajectory. With exports rising, revenues are expected to grow at a CAGR (FY06-08) of 46% and net profit at a CAGR of 82%. EPS would expand from Rs 9 in FY06 to Rs 25.7 in FY08. At the current price of Rs 124, the stock is trading at 8.7x FY07E and 4.5x FY08E earnings.
Company Background
Clutch Auto, established in 1971, is India's largest clutch manufacturer and exporter with over three decades of undisputed leadership. Its production facility is located at Faridabad. The company enjoys over 60% market share in tractors and commercial vehicles (CVs). Its clientele includes Tata Motors, Ashok Leyland, Maruti Udyog, Mahindra & Mahindra, Bajaj Auto, TAFE, Toyota, BEML, Escorts and State-run transport undertakings. In CVs, it is a major supplier to Tata Motors with a 60% market share. It has dominant market share of 80% in tractors and supplies to all manufacturers in India.
CAL is growing both organically and inorganically. In FY05, it expanded clutch plate capacity by 122% to 2 millions pieces and trebled clutch cover capacity to 1.5 millions pieces at capital expenditure (capex) of over Rs 5 crore. It acquired the clutch division of Pioneer Inc, US, in March 2006, which was renamed Pioneer Clutch Inc.
Investment Positives
Thrust on exports
CAL is targeting the US heavy-duty clutch market (estimated at $550 million) with its patented products. The acquisition of the clutch division of Pioneer Inc will strengthen its foothold in the US. Pioneer is a quasi manufacturing and distribution company in the US with a warehouse facility of over 55,000 square feet, access to 7 warehouses, 20 marketing networks, sales force of over 100 people, and most importantly a client base of 500 companies in the replacement market. Pioneer's established distribution would help CAL acquire the formers' clients.
The company has bagged a five-year order worth US$60 million from Fleet Pride, which should further aid its export growth. Fleet Pride's established network would also enable CAL tap the formers' clients. We expect export revenues to grow at a CAGR (FY06-08) of 78.8% to Rs 153.6 crore in FY08.
Product patents - a competitive advantage
CAL manufactures 500 different types of clutches including 16-patented products. It has 7 product patents, which have been approved but are awaiting registration. The company is confident of receiving the registrations in the current year. Further, it also has another 14 products under patent filing. Out of the 21 products, patents for 12 (10 in the US) are pending for overseas market. The approval of patents would open up a huge export market for the company.
EBITDA margins to expand
Higher export margins (about 4 - 6%) and implementation of Kaizen technology along with a reduction in headcount would result in higher EBITDA margins. We expect EBITDA margins to expand remarkably to 22% in FY08 from 16.3% in FY06, supporting bottom line growth in coming years.
Debt restructuring to boost net profit
The company is repaying its high-cost debt with funds raised by issuing preferential warrants worth Rs 49 crore. It has also managed to raise funds at cheaper interest rates from the Technology Development Board (TDB) and a few banks, which would further ease finance cost pressure on net profit. Net profit margin (NPM) would improve from 8.5% in FY06 to 13.3% in FY08.
Financials:
For FY06, CAL reported excellent sales growth of 58% to Rs149.3 crore, supported by more than 100% rise in export revenues to Rs 48 crore. EBIDTA registered a 55% growth in FY06. However the rise in raw material costs hit EBITDA margins, which were down by 30 basis points to 16.3%. The repayment of high-cost debts with low-cost loans supported net margins expansion to 8.5% from 6%.
Going forward, with rising export revenues and focus on high-value added products we expect net sales to rise at a CAGR of 45.5% to Rs 316 crore in FY08. Contribution from exports would increase from 32% in FY06 to 45% in FY08. With improving EBITDA margins, net profit would expand from Rs 12.7 crore in FY06 to Rs 42 crore in FY08; CAGR of 82.1%.
Valuation
With the positive trend in automobile industry, demand for clutches is expected to see a strong upsurge. This will translate into robust earning growth and improvement in profitability ratios for CAL. The stock is currently trading at 8.7x FY07E and 4.5x FY08E earnings. The attractive valuation warrants re-rating of the stock.
posted by Raj @ 1:06 PM
1 comments
1 Comments:
are you Rakesh Jhunjhunwala by any chance?
I have never before heard of any Indian who would give away stock information for free.
I read about Jhunjhunwala. He seemed like being on a league of his own,very different from the other share traders.thats why this random question......
I am not much into share trading.yet i visit your site as your write-ups seem very fascinating. keep up the good work.
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